Professor James Buchanan

Professor James Buchanan, who has died aged 93 , applied the principles of
game theory to politics, developing a theory known as “public choice”, for
which he won the Nobel Prize for Economics in 1986.

Game theory has a long history, though in its modern form it was developed by the mathematical genius John Nash (subject of the film A Beautiful Mind), who developed the “Nash equilibrium”, based on the idea that rational pursuit of self-interest by individuals does not have to lead to social breakdown but can lead to a sort of social order based on mutual mistrust.

In 1962, with Gordon Tullock, Buchanan wrote The Calculus of Consent: Logical Foundations of Constitutional Democracy. The book sought to understand and predict the behaviour of politicians and bureaucrats in a free society by utilising analytical techniques developed from game theory.

In modern democracies, Buchanan argued, politicians and bureaucrats come under constant pressure to placate interest groups with subsidies, tax breaks, regulation and uneconomic public investment; to take on ever more responsibilities to show they are “doing something”, and to expand budget deficits because they cannot square competing demands to spend more and to tax less. Politicians tend to regard political decisions of this sort as somehow independent of the economy and therefore immune from the sort of cost-benefit approach applied in the private sector, justifying them with reference to concepts such as “public good” or the “public interest”.

Such terms, Buchanan maintained, are a sham used by bureaucrats and politicians to mask their own self-interest, which is based on appeasing particular interest groups at the expense of society as a whole. The television comedy series Yes Minister was based on Buchanan’s public choice theory, revealing a world of politics as based on calculation, spin and cynical self-interest.

Buchanan argued that to create true political freedom, societies need to develop contractual and constitutional rules for economic and political decision-making similar to those which apply to transactions in the market place. Stable rules needed to be developed in order to prevent politicians “fine-tuning” the economy for short term political ends to appease particular pressure groups. He also proposed constitutional bans on debt financing and argued in favour of flat rate taxes.

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His ideas had a huge impact, especially in America and in Britain, where it inspired the public sector reforms undertaken by Margaret Thatcher, John Major and Tony Blair, all of whom were committed to the concept of challenging the old public sector elites. In America, Buchanan was involved, directly or indirectly, in nearly every significant skirmish of the 1970s and 1980s American tax revolt .

But public choice theory had many critics among those who challenged its basic premise about human nature. Amartya Sen (who himself made contributions to public choice theory) parodied the theory in a short scenario: “'Can you direct me to the railway station?’ asks the stranger. 'Certainly,’ says the local, pointing in the opposite direction, towards the post office, 'and would you post this letter for me on your way?’ 'Certainly,’ says the stranger, resolving to open it to see if it contains anything worth stealing.” Critics argued that the cynicism about human motivation implicit in public choice theory not only denied and denigrated altruism and “public service”, but also ended up destroying the legitimacy of the political class that espoused it, encouraging people to assume that politicians and bureaucrats are only out for themselves.

James McGill Buchanan was born on October 2 1919 at Murfreesboro, Tennessee, and grew up on a farm. After graduating from Middle Tennessee Normal School in 1940, when war broke out he attended a midshipmen’s school in New York. There he encountered discrimination on account of his southern origins and resented the way in which cadet officers were selected, without any testing, from the Ivy League universities. He served in the Navy until the end of the war and was awarded a Bronze Star in 1945.

After the war, Buchanan took a doctorate from the University of Chicago and subsequently taught at the University of Tennessee, where he became a professor, then at Florida State University (1951-56), where he rose to be head of the Economics department.

He had begun as a conventional public finance economist, but became frustrated by the way in which economic theorists ignored the political process. In one of his first published papers, in 1949, he challenged economists to think of their political models first before they considered questions such as “what is good taxation?” and “what is good spending?”. He was influenced by the Swedish economist Knut Wicksell, who argued that if economists wanted to improve politics, they should concentrate on improving the rules rather than expecting politicians to behave differently. A sabbatical year in Italy in 1955-56 also had a formative influence. Italian scepticism about politics destroyed any lingering romanticism about political motivation he may have had.

Buchanan went on to teach at the University of Virginia (1956-68), the University of California at Los Angeles (1968-69), and then at the Virginia Polytechnic Institute (1969-83), where he established the Center for Study of Public Choice. In 1983 he moved to George Mason University, Virginia, as Professor of Economics. Visiting professorships took him to the LSE and Cambridge University.

In later life, Buchanan bought a log cabin in the Virginia mountains where he attempted to become self-sufficient in growing his own fruit and vegetables and generating his own power.

Buchanan was the author of some 13 books and hundreds of articles. Other important works included Fiscal Theory and Political Economy (1960), The Limits of Liberty (1975), Democracy in Deficit (1977), The Power to Tax (1980) and The Reason of Rules (1985).